UK Politics for Dummies

The UK elections have come to an end and it looks like we’ve got a new Prime Minister in town, but no majority party presiding over Parliament! The scuttlebutt on Downing Street, however, is that we could see some alliances in the making…

Before we kick things off, lemme give you a lil’ background on the UK political scene. You can’t follow the playoffs unless you know the stars and teams, right?

For the past three years, Gordon Brown has been the King of the Court (so to speak), having succeeded Tony Blair as Prime Minister. Brown, who was the head of Labour Party, has been scrutinized over the past few years since the UK economy’s drive to recovery hasn’t exactly been a smooth one. To no one’s surprise, this has left all my friends in London quite squiffy!

Of course, when something ain’t your cup of tea, you don’t go bottoms up – you just order something else! Unhappy with the Labour Party, the British public decided to shift their support towards David Cameron and his Tories, who are collectively known as the Conservative Party. Banking on the platform of “change” and “new leadership,” Cameron was recently elected as the new Prime Minister.

The problem however, is that the Conservative Party was unable to win enough seats in Parliament to secure a majority party. Can someone say hung parliament?!

Months prior to the UK’s parliamentary election, polls began to hint at the possibility that none of the political parties would hold majority of the seats. In the event of a hung parliament, the British government would most likely have a tougher time passing legislation needed to solve UK’s economic problems, such as their swelling budget deficit.

And when the day of reckoning finally arrived, the UK’s political fears came to life as the elections revealed a stalemate. Although the Conservatives took the lead, they fell a few seats short of the 326 needed for a majority. Because of that, they’ve begun talks with the Liberal Democratic Party about forming a coalition which would then have greater control in parliament.

Led by hotshot Nick Clegg, the Lib Dems are now in a very interesting situation. The Lib Dems hold a significant number of seats in Parliament, so their cooperation with other parties could be quite crucial to the development of UK politics.

Little did the Tories know, however, that the Labour Party was also negotiating with the Lib Dems for an alliance. Since the Labour Party won 258 seats while the Lib Dems secured only 57 seats, this proposed coalition would still result in a power tug-of-war with the Conservatives who have 306 seats. The pound shook its head in disapproval last week when Prime Minister Gordon Brown, in his last-ditch effort to keep the Labour Party in power, announced his resignation.

With Gordon Brown exclaiming “Cheerio” to 10 Downing Street and the Labour Party, and with Clegg being named Deputy Prime Minister, could this pave the way for a coalition government between the Tories and the Lib Dems? What would all this mean to average Joe traders like you and me?

Well, according to BNP Paribas – which, if you must know, is one of the largest banking groups in the whole wide world – a Labour-Liberal Democratic coalition isn’t preferred because they would not result in an overall majority. A coalition like this would further delay the passing of rules and regulations needed to fix one of the UK’s biggest problem, its bulging public deficit. In fact, in the YouGov poll done by The Sun, a major news agency in Britain, revealed that 53% of their respondents prefer the Conservatives to govern.

Just yesterday, the pound found itself rallying strongly against the dollar on the news the Conservative Party started talks with the Liberal Democrats to form a coalition. This gives me reason to believe that a Tories led government would be bullish for the pound and that any other situation would be bearish!

Currency talks aside, I’m crossing my fingers that the results of all the political talk would bode well for UK’s economy. After all, governments are made for the people and not for…. err, the pound. Hah!

About Forex Gump

I throw macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully, the final product are lessons about the FX market that's easy to understand.

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